Former name, former address and former fiscal year, if changed since last report.

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


	Unaudited (Dollars in thousands, except par value and share amounts)
	March 31, 2010			December 31, 2009*			Unaudited (Dollars in thousands, except par value and share amounts)
							June 30, 2010			December 31, 2009*
ASSETS
Current assets
Cash and cash equivalents	$	24,820		$	25,051		$	27,606		$	25,051
Construction fund (restricted cash)		407			2,358			—			2,358
Accounts receivable, net		110,587			108,793			114,595			108,793
Inventories
Raw materials and supplies		27,371			23,495			28,409			23,495
Work-in-process and finished goods		27,087			26,545			26,435			26,545
Prepaid expenses and other current assets		12,929			12,656			13,149			12,656

Total current assets		203,201			198,898			210,194			198,898

Property, plant and equipment, at cost		187,639			190,980			181,547			190,980
Less accumulated depreciation		(122,078	)		(123,554	)		(118,688	)		(123,554	)

Net property, plant and equipment		65,561			67,426			62,859			67,426
Goodwill		45,509			46,515			44,452			46,515
Other intangible assets, net		5,272			5,579			5,012			5,579
Investments in associated companies		8,836			8,824			9,317			8,824
Deferred income taxes		31,510			31,692			31,210			31,692
Other assets		46,941			39,537			46,282			39,537

Total assets	$	406,830		$	398,471		$	409,326		$	398,471


LIABILITIES AND EQUITY
Current liabilities
Short-term borrowings and current portion of long-term debt	$	2,485		$	2,431		$	3,596		$	2,431
Accounts and other payables		56,949			60,939			62,200			60,939
Accrued compensation		10,443			16,656			13,012			16,656
Accrued pension and postretirement benefits		4,702			4,717			4,682			4,717
Other current liabilities		16,700			15,224			18,174			15,224

Total current liabilities		91,279			99,967			101,664			99,967

Long-term debt		71,099			63,685			60,975			63,685
Deferred income taxes		8,613			8,605			8,443			8,605
Accrued pension and postretirement benefits		26,865			27,602			26,235			27,602
Other non-current liabilities		45,859			42,317			45,462			42,317

Total liabilities		243,715			242,176			242,779			242,176

Equity
Common stock $1 par value; authorized 30,000,000 shares; issued and outstanding 2010 – 11,151,787; 2009 – 11,085,549 shares		11,152			11,086
Common stock $1 par value; authorized 30,000,000 shares; issued 2010 – 11,258,582; 2009 – 11,085,549 shares								11,259			11,086
Capital in excess of par value		30,277			27,527			32,798			27,527
Retained earnings		129,994			123,140			136,497			123,140
Accumulated other comprehensive loss		(14,058	)		(10,439	)		(20,070	)		(10,439	)

Total Quaker shareholders’ equity		157,365			151,314			160,484			151,314

Noncontrolling interest		5,750			4,981			6,063			4,981

Total equity		163,115			156,295			166,547			156,295

Total liabilities and equity	$	406,830		$	398,471		$	409,326		$	398,471

The accompanying notes are an integral part of these condensed consolidated financial statements.


							Unaudited (Dollars in thousands, except per share amounts)
	Unaudited (Dollars in thousands, except per share and share amounts) Three Months Ended March 31,						Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009			2010			2009
Net sales	$	128,320		$	98,507		$	135,991		$	102,335		$	264,311		$	200,842
Cost of goods sold		80,980			69,793			87,460			66,298			168,440			136,091

Gross margin		47,340			28,714			48,531			36,037			95,871			64,751
Selling, general and administrative expenses		33,669			26,697			35,118			29,050			68,787			55,747
Restructuring and related activities		—			2,289			—			—			—			2,289
CEO transition costs								—			1,193			—			1,193

Operating income (loss)		13,671			(272	)
Operating income								13,413			5,794			27,084			5,522
Other income, net		763			1,454			1,123			356			1,886			1,810
Interest expense		(1,311	)		(1,242	)		(1,386	)		(1,538	)		(2,697	)		(2,780	)
Interest income		184			153			343			220			527			373

Income before taxes and equity in net loss of associated companies		13,307			93
Taxes (tax benefit) on income before equity in net loss of associated companies		3,181			(251	)
Income before taxes and equity in net income of associated companies								13,493			4,832			26,800			4,925
Taxes on income before equity in net income of associated companies								4,143			1,567			7,324			1,316

Income before equity in net loss of associated companies		10,126			344
Equity in net loss of associated companies		(89	)		(142	)
Income before equity in net income of associated companies								9,350			3,265			19,476			3,609
Equity in net income of associated companies								384			227			295			85

Net income		10,037			202			9,734			3,492			19,771			3,694
Less: Net income attributable to noncontrolling interest		618			200			581			258			1,199			458

Net income attributable to Quaker Chemical Corporation	$	9,419		$	2		$	9,153		$	3,234		$	18,572		$	3,236

Per share data:
Net income attributable to Quaker Chemical Corporation Common Shareholders – basic	$	0.85		$	0.00		$	0.82		$	0.29		$	1.66		$	0.29
Net income attributable to Quaker Chemical Corporation Common Shareholders – diluted	$	0.84		$	0.00		$	0.80		$	0.29		$	1.64		$	0.29
Dividends declared	$	0.23		$	—		$	0.235		$	0.46		$	0.465		$	0.46

The accompanying notes are an integral part of these condensed consolidated financial statements.


							Unaudited (Dollars in thousands)
	Unaudited (Dollars in thousands) For the Three Months Ended March 31,						For the Six Months Ended June 30,
	2010			2009			2010			2009
Cash flows from operating activities
Net income	$	10,037		$	202		$	19,771		$	3,694
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		2,593			2,458			5,068			4,801
Amortization		254			257			462			522
Equity in net loss of associated companies, net of dividends		89			142
Equity in undistributed earnings of associated companies, net of dividends								(233	)		(85	)
Deferred compensation and other, net		289			(2,852	)		(357	)		(1,521	)
Stock-based compensation		727			352			1,663			927
Restructuring and related activities		—			2,289			—			2,289
Gain on disposal of property, plant and equipment		(32	)		(1,193	)		(22	)		(1,193	)
Insurance settlement realized		(345	)		(144	)		(772	)		(610	)
Pension and other postretirement benefits		(2,265	)		(1,907	)		(2,227	)		(3,799	)
Increase (decrease) in cash from changes in current assets and current liabilities, net of acquisitions:
Accounts receivable		(3,606	)		7,196			(10,645	)		13,498
Inventories		(5,332	)		10,060			(7,181	)		15,022
Prepaid expenses and other current assets		(1,360	)		34			(1,641	)		3,481
Accounts payable and accrued liabilities		(5,818	)		(6,045	)		6,409			(6,354	)
Change in restructuring liabilities		—			(2,652	)		—			(3,885	)

Net cash (used in) provided by operating activities		(4,769	)		8,197
Net cash provided by operating activities								10,295			26,787

Cash flows from investing activities
Investments in property, plant and equipment		(2,042	)		(2,375	)		(3,468	)		(5,078	)
Payments related to acquisitions								—			(1,000	)
Proceeds from disposition of assets		41			1,605			59			1,617
Payments related to acquisitions		—			(1,000	)
Insurance settlement received and interest earned		5,038			5,056			5,070			5,100
Change in restricted cash, net		(2,742	)		(4,086	)		(1,940	)		(2,593	)

Net cash provided by (used in) investing activities		295			(800	)
Net cash used in investing activities								(279	)		(1,954	)

Cash flows from financing activities
Net decrease in short-term borrowings		—			(1,619	)
Net increase (decrease) in short-term borrowings								1,263			(1,716	)
Proceeds from long-term debt		7,583			1,584			—			1,584
Repayment of long-term debt		(122	)		(7,728	)
Repayments of long-term debt								(2,614	)		(17,252	)
Dividends paid		(2,550	)		(2,492	)		(5,119	)		(5,022	)
Stock options exercised, other		135			69			1,663			262
Excess tax benefit related to stock option exercises		321			—			1,236			—
Distributions to noncontrolling shareholders								—			(90	)

Net cash provided by (used in) financing activities		5,367			(10,186	)
Net cash used in financing activities								(3,571	)		(22,234	)

Effect of exchange rate changes on cash		(1,124	)		(126	)		(3,890	)		1,114

Net decrease in cash and cash equivalents		(231	)		(2,915	)
Net increase in cash and cash equivalents								2,555			3,713
Cash and cash equivalents at beginning of period		25,051			20,892			25,051			20,892

Cash and cash equivalents at end of period	$	24,820		$	17,977		$	27,606		$	24,605


Supplemental cash flow disclosures:
Non-cash activities:
Excess tax benefit related to stock option exercises	$	1,633		$	—		$	882		$	—
Restricted insurance receivable (See also Note 13 of Notes to Condensed Consolidated Financial Statements)		5,000			5,000
Restricted insurance receivable (See also Note 14 of Notes to Condensed Consolidated Financial Statements)								5,000			5,000

The accompanying notes are an integral part of these condensed consolidated financial statements.

The condensed consolidated financial statements included herein are unaudited and have been prepared in accordance with generally accepted accounting principles in the United States for interim financial reporting and the United States Securities and Exchange Commission regulations. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the financial statements reflect all adjustments (consisting only of normal recurring adjustments, except as discussed below) which are necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods. Certain reclassifications of prior ~~years’~~year’s data have been made to improve comparability. The results for the three and six months ended ~~March 31,~~June 30, 2010 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2009.

Effective January 1, 2010, the Venezuelan economy was considered to be hyperinflationary under generally accepted accounting principles in the United States, since it has experienced a rate of general inflation in excess of 100% over the latest three-year period, based upon the blended Consumer Price Index and National Consumer Price Index. Accordingly, all gains and losses resulting from the remeasurement of the Company’s Venezuelan 50% equity affiliate (Kelko Quaker Chemical, S.A.) are required to be recorded directly in the statement of operations. On January 8, 2010, the Venezuelan government announced the devaluation of the Bolivar Fuerte and the establishment of a two-tiered exchange structure. As a result of the devaluation, the Company recorded a charge of approximately $0.03 per diluted share in the first quarter of 2010.

The Company has been and will recognize certain accelerated and other costs in accordance with the retirement of the Company’s former CEO. The Company expects to incur a final charge of $1,265 later in 2010 related to the former CEO’s supplemental retirement income plan.

As part of the Company’s chemical management services, certain third-party product sales to customers are managed by the Company. Where the Company acts as principal, ~~revenue is~~revenues are recognized on a gross reporting basis at the selling price negotiated with customers. Where the Company acts as an agent, such revenue is recorded using net reporting as service revenues at the amount of the administrative fee earned by the Company for ordering the goods. Third-party products transferred under arrangements resulting in net reporting totaled ~~$12,559~~$27,995 and ~~$4,831~~$8,990 for the ~~three~~six months ended ~~March 31,~~June 30, 2010 and 2009, respectively.

The FASB updated its guidance regarding a vendor’s multiple-deliverable arrangements in October 2009. The updated guidance establishes a selling price hierarchy to be followed in determining the selling price for each deliverable in multiple-deliverable arrangements, eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement using the relative selling price method and requires enhanced disclosure regarding multiple-deliverable arrangements. The guidance is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning after June 15, 2010. The Company is currently assessing the impact of this guidance on its financial statements.

In the first quarter of 2009, Quaker’s management implemented a restructuring program totaling $2,289. The Company completed the initiatives under this program during 2009.

The most significant other item affecting the comparison of year-to-date effective tax rates is a changing mix of income among tax jurisdictions.

The FASB’s guidance regarding accounting for uncertainty in income taxes prescribes the recognition threshold and measurement attributes for financial statement recognition and measurement of tax positions taken or expected to be taken on a tax return. The guidance further requires the determination of whether the benefits of tax positions will be more likely than not sustained upon audit based upon the technical merits of the tax position. For tax positions that are determined to be more likely than not sustained upon audit, a company recognizes the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement in the financial statements. For tax positions that are not determined to be more likely than not sustained upon audit, a company does not recognize any portion of the benefit in the financial statements. Additionally, the guidance provides for derecognition, classification, penalties and interest, accounting in interim periods, disclosure and transition.

At December 31, 2009, the Company’s cumulative liability for gross unrecognized tax benefits was $10,686. As of ~~March 31,~~June 30, 2010, the Company’s cumulative liability for gross unrecognized tax benefits was ~~$9,978.~~$9,641.

The Company continues to recognize interest and penalties associated with uncertain tax positions as a component of taxes on income in its Consolidated Statement of Income. The Company had accrued $1,850 for cumulative interest and $911 for cumulative penalties at December 31, 2009. The Company has recognized ~~($104)~~$187 and $83 for interest and ~~$118~~$62 and $180 for penalties on its Consolidated Statement of Income for the three-month ~~period~~and six-month periods ended ~~March 31,~~June 30, 2010, respectively, and ~~at that date,~~as of June 30, 2010, the Company had accrued ~~$1,649~~$1,701 for cumulative interest and ~~$992~~$996 for cumulative penalties.

During the ~~quarter~~three-month period ended March 31, 2010, the Company derecognized several uncertain tax positions due to expiration of the applicable statutes of limitations for certain tax ~~years. As a result,~~years of approximately $923. During the three-month period ended June 30, 2010, the Company ~~recognized a $923 decrease in its cumulative liability for gross unrecognized~~did not derecognize any additional uncertain tax ~~benefits.~~ positions due to expiration of statutes of limitations.

The Company estimates that ~~during~~for the full year ended December 31, 2010 it will reduce its cumulative liability for gross unrecognized tax benefits by approximately $1,800 to $1,900 due to the expiration of the statute of limitations with regard to certain tax positions. This estimated reduction in the cumulative liability for unrecognized tax benefits does not consider any increase in liability for unrecognized tax benefits with regard to existing tax positions or any increase in cumulative liability for unrecognized tax benefits with regard to new tax positions for the year ended December 31, 2010.

The Company and its subsidiaries are subject to U.S. Federal income tax, as well as the income tax of various state and foreign tax jurisdictions. Tax years that remain subject to examination by major tax jurisdictions include the Netherlands and United Kingdom from 2004, Italy, Brazil, China and Spain from 2005, United States from 2006, France from 2008, and various domestic state tax jurisdictions from 1993.

The FASB’s guidance regarding fair value measurements establishes a common definition for fair value to be applied to guidance requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. The guidance does not require any new fair value measurements, but rather applies to all other accounting guidance that requires or permits fair value measurements.

The guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

The Company values its interest rate swaps, company-owned life insurance policies and various deferred compensation assets and liabilities at fair value. The Company’s assets and liabilities subject to fair value measurement are as follows (in thousands):

Notes to Condensed Consolidated Financial ~~Statements—~~Statements – Continued


	Fair Value as of December 31, 2009			Fair Value Measurements at December 31, 2009 Using Fair Value Hierarchy								Fair Value as of December 31, 2009			Fair Value Measurements at December 31, 2009 Using Fair Value Hierarchy
			Level 1			Level 2			Level 3			Fair Value as of December 31, 2009		Level 1			Level 2			Level 3
Liabilities	Fair Value as of December 31, 2009
Deferred compensation liabilities
Large capitalization registered investment companies	$	557		$	557		$	—		$	—	$	557		$	557		$	—		$	—
Mid capitalization registered investment companies		98			98			—			—		98			98			—			—
Small capitalization registered investment companies		108			108			—			—		108			108			—			—
International developed and emerging markets registered investment companies		205			205			—			—		205			205			—			—
Fixed income registered investment companies		64			64			—			—		64			64			—			—
Fixed general account		184			—			184			—		184			—			184			—
Interest rate derivatives		2,160			—			2,160			—		2,160			—			2,160			—


Total	$	3,376		$	1,032		$	2,344		$	—	$	3,376		$	1,032		$	2,344		$	—

The fair values of Company-owned life insurance (“COLI”) and COLI deferred compensation assets are based on quotes for like instruments with similar credit ratings and terms. The fair values of Other deferred compensation assets and liabilities are based on quoted prices in active markets, with the exception of ~~the~~ fixed general account, which is based on quotes for like instruments with similar credit ratings and terms. The fair values of interest rate derivatives are based on quoted market prices from various banks for similar instruments. Upon review of the underlying assets upon which the deferred compensation liabilities are based, the Company reclassified the fixed general account from Level 1 to Level 2 as of December 31, 2009.

The Company is exposed to the impact of changes in interest rates, foreign currency fluctuations, changes in commodity prices and credit risk. The Company does not use derivative instruments to mitigate the risks associated with foreign currency fluctuations, changes in commodity prices or credit risk. Quaker uses interest rate swaps to mitigate the impact of changes in interest rates. The swaps convert a portion of the Company’s variable interest rate debt to fixed interest rate debt and are designated as cash flow hedges and reported on the balance sheet at fair value. The effective portions of the hedges are reported in Other Comprehensive Income (“OCI”) until reclassified to earnings during the same period the hedged item affects earnings. The Company has no derivatives designated as fair value hedges and only has derivatives designated as hedging instruments under the FASB’s guidance. The notional amount of the Company’s interest rate swaps was $40,000 as of ~~March 31,~~June 30, 2010 and December 31, 2009.

Information about the Company’s interest rate derivatives is as ~~follows (in thousands of dollars):~~follows:


		Fair Value					Fair Value
	Balance Sheet Location	March 31, 2010		December 31, 2009		Balance Sheet Location	June 30, 2010		December 31, 2009
Derivatives designated as cash flow hedges:
Interest rate swaps	Other current liabilities	$	753	$	1,006	Other current liabilities	$	450	$	1,006
Interest rate swaps	Other non-current liabilities		1,203		1,154	Other non-current liabilities		1,211		1,154

		$	1,956	$	2,160		$	1,661	$	2,160

Notes to Condensed Consolidated Financial ~~Statements—~~Statements – Continued

The Company recognized approximately ~~$727~~$1,663 of share-based compensation expense for the ~~three~~six months ended ~~March 31,~~June 30, 2010. The compensation expense was comprised of ~~$95~~$198 related to stock options, ~~$292~~$579 related to nonvested stock awards, ~~$11~~$22 related to the Company’s Employee Stock Purchase Plan, ~~$297~~$799 related to the Company’s non elective 401(k) matching contribution in stock and ~~$32~~$65 related to the Company’s Director Stock Ownership Plan. ~~The Company also recognized $321 of excess tax benefits related to stock option exercises in the first quarter of 2010.~~

Based on historical experience, the Company has assumed a forfeiture rate of 13% on the nonvested stock. The Company will record additional expense if the actual forfeiture rate is lower than estimated, and will record a recovery of prior expense if the actual forfeiture is higher than estimated.

The Company has a long-term incentive program (“LTIP”) for key employees which provides for the granting of options to purchase stock at prices not less than market value on the date of the grant. Most options become exercisable between one and three years after the date of the grant for a period of time determined by the Company not to exceed seven years from the date of ~~grant for options issued in 1999 or later.~~grant. Common stock awards issued under the LTIP program are subject only to time vesting over a three to five-year period. In addition, as part of the Company’s Global Annual Incentive Plan (“GAIP”), nonvested shares may be issued to key employees, which generally vest over a two to five-year period.


	Number of Shares		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (years)	Number of Shares		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (years)
Balance at December 31, 2009	526,508		$	16.66		526,508		$	16.66
Options granted	110,939			18.82		110,939			18.82
Options exercised	(5,871	)		13.25		(75,542	)		18.69
Options expired	(4,800	)		20.18		(9,100	)		20.71

Balance at March 31, 2010	626,776		$	17.05	4.0
Balance at June 30, 2010						552,805		$	16.75	3.9

Exercisable at March 31, 2010	387,795		$	19.32	2.6
Exercisable at June 30, 2010						313,824		$	19.33	2.3

As of ~~March 31,~~June 30, 2010, the total intrinsic value of options outstanding was approximately ~~$6,164,~~$6,163, and the total intrinsic value of exercisable options was ~~$2,933.~~approximately $2,689. Intrinsic value is calculated as the difference between the current market price of the underlying security and the strike price of a related option.

A summary of the Company’s outstanding stock options at ~~March 31,~~June 30, 2010 is as follows:


Range of Exercise Prices	Number Outstanding at 3/31/2010	Weighted Average Contractual Life	Weighted Average Exercise Price		Number Exercisable at 3/31/2010	Weighted Average Exercise Price		Number Outstanding at 6/30/2010	Weighted Average Contractual Life	Weighted Average Exercise Price		Number Exercisable at 6/30/2010	Weighted Average Exercise Price
$5.33 - $7.98	162,919	5.9	$	6.93	52,262	$	6.93	148,589	5.7	$	6.93	37,932	$	6.93
$7.99 - $18.62	—	—		—	—		—	—	—		—	—		—
$18.63 - $21.28	313,344	4.0		19.33	185,020		19.63	297,340	3.8		19.32	169,016		19.63
$21.29 - $23.94	131,513	2.1		22.82	131,513		22.82	99,576	1.9		23.04	99,576		23.04
$23.95 - $26.60	19,000	1.0		26.05	19,000		26.05	7,300	0.8		26.05	7,300		26.05

	626,776	4.0		17.05	387,795		19.32	552,805	3.9		16.75	313,824		19.33

As of ~~March 31,~~June 30, 2010, unrecognized compensation expense related to options granted during 2008 was ~~$60,~~$42, for options granted during 2009 was ~~$216~~$187 and for options granted induring 2010 was ~~$647.~~$590.

During the first quarter of 2010, the Company granted 110,939 stock options under the Company’s LTIP plan that are subject only to time vesting over a three-year period. The options were valued using the Black-Scholes model with the following assumptions: dividend yield of 5.1%, expected volatility of 53.72%, a ~~risk free~~risk-free interest rate of 2.85%, an expected term of six years, and a forfeiture rate of 3% over the remaining life of the options. Approximately ~~$38~~$95 of expense was recorded on these options during the first ~~quarter~~six months of 2010. The fair value of these awards is amortized on a straight-line basis over the vesting period of the awards.

Under the Company’s LTIP plan, 158,207 shares of nonvested stock were outstanding at December 31, 2009. In the first quarter of 2010, 41,204 shares of nonvested stock were granted at a weighted average grant date fair value of $18.82. In the second quarter of 2010, 11,096 shares of nonvested stock were granted to Directors at a weighted average grant date fair value of $25.94. As of ~~March 31,~~June 30, 2010, no shares were forfeited, ~~16,600~~37,531 shares vested and ~~182,811~~172,976 were outstanding. The fair value of the nonvested stock is based on the trading price of the Company’s common stock on the date of grant. The Company adjusts the grant date fair value for expected forfeitures based on historical experience for similar awards. As of ~~March 31,~~June 30, 2010, unrecognized compensation expense related to these awards was ~~$1,341,~~$1,382, to be recognized over a weighted average remaining period of ~~2.22~~1.89 years.

Under the Company’s GAIP plan, 69,675 shares were outstanding at December 31, 2009. Through ~~March 31,~~June 30, 2010, no shares were granted, 4,375 shares vested, ~~750~~1,050 shares were forfeited and ~~64,550~~64,250 shares were outstanding. As of ~~March 31,~~June 30, 2010, unrecognized compensation expense related to these awards was ~~$332,~~$289, to be recognized over a weighted average remaining period of ~~2.0~~1.75 years.

In 2000, the Board adopted an Employee Stock Purchase Plan (“ESPP”) whereby employees may purchase Company stock through a payroll deduction plan. Purchases are made from the plan and credited to each participant’s account at the end of each month, the “Investment Date.” The purchase price of the stock is 85% of the fair market value on the Investment Date. The plan is compensatory and the 15% discount is expensed on the Investment Date. All employees, including officers, are eligible to participate in this plan. A participant may withdraw all uninvested payment balances credited to a participant’s account at any time by giving written notice to the ~~Committee.~~Committee designated by the Board. An employee whose stock ownership of the Company exceeds five percent of the outstanding common stock is not eligible to participate in this plan.

In March 2003, the Company’s Board of Directors approved a stock ownership plan for each member of the Company’s Board to encourage the Directors to increase their investment in the Company. The Plan was effective on the date it was approved and remains in effect for a term of ten years or until it is earlier terminated by the Board. The maximum number of shares of Common Stock which may be issued under the Plan is 75,000, subject to certain conditions that the Compensation/Management Development Committee (the “Committee”) may elect to adjust the number of shares. As of ~~December 31, 2009,~~June 30, 2010, the Committee has not made any elections to adjust the shares under this plan. Each Director is eligible to receive an annual retainer for services rendered as a member of the Board of Directors. Currently, each Director who owns less than 7,500 shares of Company Common Stock is required to receive 75% of the annual retainer in Common Stock and 25% of the annual retainer in cash. Each Director who owns 7,500 or more shares of Company Common Stock receives 25% of the annual retainer in Common Stock and 75% of the annual retainer in cash with the option to receive Common Stock in lieu of the cash portion of the retainer. Currently, the annual retainer is ~~$32.~~$40. The number of shares issued in payment of the fees is calculated based on an amount equal to the average of the closing prices per share of Common Stock as reported on the composite tape of the New York Stock Exchange for the two trading days immediately preceding the retainer payment date. The retainer payment date is June 1. ~~The~~For the three and six months ended June 30, 2010, the Company recorded ~~$32 for each~~approximately $33 and $65 of compensation expense, respectively. For the three and six months ended ~~March 31, 2010~~June 30, 2009, the Company recorded approximately $32 and ~~2009.~~$64, respectively.

The Company applies FASB’s guidance regarding the calculation of earnings per share using the two-class method. The Company includes nonvested stock awards with rights to non-forfeitable dividends as part of its basic weighted average share calculation.

The following number of stock options are not included in the ~~diluted~~ earnings per share since in each case the exercise price is greater than the market ~~price~~price: 0 and ~~the effect would have been anti-dilutive: 142,413 and 529,608~~360,518 for the three months ended ~~March 31,~~June 30, 2010 and 2009, and 7,300 and 360,518 for the six months ended June 30, 2010 and 2009, respectively.

The Company organizes its segments by type of product sold. The Company’s reportable segments are as follows:

~~(1) Metalworking process chemicals – industrial process fluids for various heavy industrial and manufacturing applications.~~

~~(2) Coatings – temporary and permanent coatings for metal and concrete products and chemical milling maskants.~~


	Three Months Ended March 31,						Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009			2010			2009
Metalworking Process Chemicals
Net Sales	$	121,205		$	90,799
Operating Income		25,519			9,639
Net sales							$	126,962		$	93,560		$	248,167		$	184,359
Operating income								25,117			15,772			50,636			25,411
Coatings
Net Sales		6,764			7,300
Operating Income		1,408			1,526
Net sales								8,510			8,255			15,274			15,555
Operating income								1,918			2,098			3,326			3,624
Other Chemical Products
Net Sales		351			408
Operating Income		(57	)		(64	)
Net sales								519			520			870			928
Operating income								23			(26	)		(34	)		(90	)

Total
Net Sales		128,320			98,507
Operating Income		26,870			11,101
Net sales								135,991			102,335			264,311			200,842
Operating income								27,058			17,844			53,928			28,945
Non-operating expenses								(13,437	)		(10,592	)		(26,382	)		(19,419	)
Restructuring and related charges		—			(2,289	)		—			—			—			(2,289	)
Non-operating expenses		(12,945	)		(8,827	)
CEO transition costs								—			(1,193	)		—			(1,193	)
Amortization		(254	)		(257	)		(208	)		(265	)		(462	)		(522	)
Interest expense		(1,311	)		(1,242	)		(1,386	)		(1,538	)		(2,697	)		(2,780	)
Interest income		184			153			343			220			527			373
Other income, net		763			1,454			1,123			356			1,886			1,810

Consolidated income before taxes and equity in net loss of associated companies	$	13,307		$	93
Consolidated income before taxes and equity in net income of associated companies							$	13,493		$	4,832		$	26,800		$	4,925

Operating income comprises revenue less related costs and expenses. Non-operating items primarily consist of general corporate expenses identified as not being a cost of operation, interest expense, interest income, and license fees from non-consolidated ~~affiliates.~~

Notes to Condensed Consolidated Financial ~~Statements—~~Statements – Continued

The following table presents the changes in equity, noncontrolling interest and comprehensive income ~~(loss)~~ for the three and six months ended ~~March 31,~~June 30, 2010 and 2009:


	Common stock		Capital in excess of par value		Retained earnings			Accumulated other comprehensive loss			Noncontrolling Interest			Comprehensive Income (Loss)			Total			Common stock		Capital in excess of par value		Retained earnings			Accumulated other comprehensive loss			Noncontrolling Interest			Comprehensive Income			Total
Balance at December 31, 2009	$	11,086	$	27,527	$	123,140		$	(10,439	)	$	4,981					$	156,295
Balance at March 31, 2010																				$	11,152	$	30,277	$	129,994		$	(14,058	)	$	5,750					$	163,115
Net income																					—		—		9,153						581		$	9,734
Currency translation adjustments																					—		—		—			(6,458	)		(268	)		(6,726	)
Defined benefit retirement plans																					—		—		—			269			—			269
Current period changes in fair value of derivatives																					—		—		—			191			—			191
Unrealized loss on available-for-sale securities																					—		—		—			(14	)		—			(14	)

Comprehensive income																																		3,454			3,454

Comprehensive loss attributable to noncontrolling interest																																		(313	)

Comprehensive income attributable to Quaker Chemical Corporation																																	$	3,141

Dividends ($0.235 per share)																					—		—		(2,650	)		—			—						(2,650	)
Share issuance and equity-based compensation plans																					107		2,357		—			—			—						2,464
Excess tax benefit from stock option exercises																					—		164		—			—			—						164

Balance at June 30, 2010																				$	11,259	$	32,798	$	136,497		$	(20,070	)	$	6,063					$	166,547


Balance at March 31, 2009																				$	10,997	$	25,495	$	117,091		$	(29,490	)	$	4,088					$	128,181
Net income		—		—		9,419						618		$	10,037						—		—		3,234						258		$	3,492
Currency translation adjustments		—		—		—			(3,998	)		151			(3,847	)					—		—		—			8,206			437			8,643
Defined benefit retirement plans		—		—		—			269			—			269						—		—		—			980			—			980
Current period changes in fair value of derivatives		—		—		—			105			—			105						—		—		—			300			—			300
Unrealized gain on available-for-sale securities		—		—		—			5			—			5						—		—		—			17			—			17

Comprehensive income															6,569			6,569																13,432			13,432

Comprehensive loss attributable to noncontrolling interest															(769	)																		(695	)

Comprehensive income attributable to Quaker Chemical Corporation														$	5,800																		$	12,737

Dividends ($0.23 per share)		—		—		(2,565	)		—			—						(2,565	)
Share issuance and equity-based compensation plans		66		796		—			—			—						862
Excess tax benefit from stock option exercises		—		1,954		—			—			—						1,954

Balance at March 31, 2010	$	11,152	$	30,277	$	129,994		$	(14,058	)	$	5,750					$	163,115


Balance at December 31, 2008	$	10,833	$	25,238	$	117,089		$	(27,237	)	$	3,952					$	129,875
Net income		—		—		2						200		$	202
Currency translation adjustments		—		—		—			(2,599	)		(64	)		(2,663	)
Defined benefit retirement plans		—		—		—			289			—			289
Current period changes in fair value of derivatives		—		—		—			68			—			68
Unrealized loss on available-for-sale securities		—		—		—			(11	)		—			(11	)

Comprehensive loss															(2,115	)		(2,115	)
Comprehensive loss attributable to noncontrolling interest															(136	)

Comprehensive loss attributable to Quaker Chemical Corporation														$	(2,251	)

Dividends ($0.46 per share)																					—		—		(5,071	)		—									(5,071	)
Dividends paid to noncontrolling shareholders																					—		—		—			—			(90	)					(90	)
Share issuance and equity-based compensation plans		164		257		—			—			—						421			53		715		—			—			—						768

Balance at March 31, 2009	$	10,997	$	25,495	$	117,091		$	(29,490	)	$	4,088					$	128,181
Balance at June 30, 2009																				$	11,050	$	26,210	$	115,254		$	(19,987	)	$	4,693					$	137,220

During the first ~~quarter~~half of 2010, the Company recorded ~~$1,954~~$2,118 of excess tax benefits in capital in excess of par value on its Condensed Consolidated Balance Sheet related to stock option exercises, which occurred over the current and prior years. Previously, the Company’s actual taxable income in affected jurisdictions was not sufficient to recognize these benefits, while the Company’s full-year 2010 projection of taxable income is expected to be sufficient to recognize these benefits. As a result, the Company recognized ~~$321~~$1,236 of these benefits as a cash inflow from financing activities in its Condensed Consolidated Statement of Cash Flows which represents the Company’s estimate of cash savings through ~~March 31,~~June 30, 2010.

As discussed in a Current Report on Form 8-K filed on June 21, 2010, the Company has amended its primary credit facility to increase the maximum principal amount available for revolving credit borrowings from $125,000 to $175,000. This amount can be increased to $225,000 at the Company’s option if the lenders agree to increase their commitment and the Company satisfies certain conditions. The amendment also extended the maturity date of the Company’s credit line from August 2012 to June 2014 and amended certain acquisition and other covenants, including a reduced interest rate spread and a new interest rate tier for leverage ratios below one times EBITDA that would allow for a further interest rate spread reduction. Under the amendment, the Company is still subject to the financial covenants under the facility, all of which the Company was in compliance with at June 30, 2010.

The changes in carrying amount of goodwill for the ~~three~~six months ended ~~March 31,~~June 30, 2010 are as follows. The Company has recorded no impairment charges in the past:

Gross carrying amounts and accumulated amortization for definite-lived intangible assets as of ~~March 31,~~June 30, 2010 and December 31, 2009 are as follows:


	Gross Carrying Amount				Accumulated Amortization				Gross Carrying Amount				Accumulated Amortization
	2010		2009		2010		2009		2010		2009		2010		2009
Amortized intangible assets
Customer lists and rights to sell	$	8,255	$	8,373	$	4,497	$	4,428	$	8,109	$	8,373	$	4,535	$	4,428
Trademarks and patents		1,788		1,788		1,788		1,788		1,788		1,788		1,788		1,788
Formulations and product technology		3,278		3,278		2,514		2,450		3,278		3,278		2,579		2,450
Other		3,373		3,409		3,223		3,203		3,367		3,409		3,228		3,203

Total	$	16,694	$	16,848	$	12,022	$	11,869	$	16,542	$	16,848	$	12,130	$	11,869

The Company recorded ~~$254~~$462 and ~~$257~~$522 of amortization expense in the first ~~three~~six months of 2010 and 2009, respectively. Estimated annual aggregate amortization expense for the current year and subsequent five years is as follows:


For the year ended December 31, 2010	$	886	$	880
For the year ended December 31, 2011	$	818	$	812
For the year ended December 31, 2012	$	721	$	715
For the year ended December 31, 2013	$	540	$	537
For the year ended December 31, 2014	$	305	$	305
For the year ended December 31, 2015	$	305	$	305

The Company has one indefinite-lived intangible asset of $600 for trademarks recorded in connection with the Company’s 2002 acquisition of Epmar.

The components of net periodic benefit cost, for the three and six months ended June 30, are as follows:


	Three Months Ended March 31,										Three Months Ended June 30,										Six Months Ended June 30,
	Pension Benefits						Other Postretirement Benefits				Pension Benefits						Other Postretirement Benefits				Pension Benefits						Other Postretirement Benefits
	2010			2009			2010		2009		2010			2009			2010		2009		2010			2009			2010		2009
Service cost	$	511		$	499		$	4	$	5	$	480		$	516		$	5	$	5	$	991		$	1,015		$	9	$	10
Interest cost and other		1,530			1,602			99		143		1,482			1,610			98		142		3,012			3,212			197		285
Expected return on plan assets		(1,384	)		(1,183	)		—		—		(1,344	)		(1,206	)		—		—		(2,728	)		(2,389	)		—		—
Settlement charge												—			1,193			��		—		—			1,193			—		—
Other amortization, net		402			427			13		25		402			404			13		25		804			831			26		50

Net periodic benefit cost	$	1,059		$	1,345		$	116	$	173	$	1,020		$	2,517		$	116	$	172	$	2,079		$	3,862		$	232	$	345

The Company previously disclosed in its financial statements for the year ended December 31, 2009, that it expected to make minimum cash contributions of $8,578 to its pension plans and $802 to its other postretirement benefit plan in 2010. As of ~~March 31,~~June 30, 2010, ~~$3,263~~$4,185 and ~~$203~~$397 of contributions have been made, respectively.

During the second quarter of 2009, the Company incurred a settlement charge of $1,193 in connection with the retirement of the Company’s former CEO in the third quarter of 2008. The Company expects to incur a final settlement charge of approximately $1,265 later in 2010.

In April of 1992, the Company identified certain soil and groundwater contamination at AC Products, Inc. (“ACP”), a wholly owned subsidiary. In voluntary coordination with the Santa Ana California Regional Water Quality Board, ACP has been remediating the contamination, the principal contaminant of which is perchloroethylene (“PERC”). On or about December 18, 2004, the Orange County Water District (“OCWD”) filed a civil complaint in Superior Court, in Orange County, California against ACP and other parties potentially responsible for groundwater contamination. OCWD was seeking to recover compensatory and other damages related to the investigation and remediation of the contamination in the groundwater. Effective October 17, 2007, ACP and OCWD settled all claims related to this litigation. Pursuant to the settlement agreement with OCWD, ACP agreed to pay $2,000 in two equal payments of $1,000 (the first payment paid October 31, 2007 and the second payment paid on February 15, 2008). In addition to the $2,000 payment, ACP agreed to operate the two existing groundwater treatment systems associated with its extraction wells P-2 and P-3 so as to hydraulically contain groundwater contamination emanating from ACP’s site until such time as the concentrations of PERC are below the Federal maximum contaminant level for four consecutive quarterly sampling events. During the third quarter of 2007, the Company recognized a $3,300 charge made up of $2,000 for the settlement of the litigation, plus an increase in its reserve for its soil and water remediation program of $1,300. As of ~~March 31,~~June 30, 2010, the Company believes that the range of potential-known liabilities associated with ACP contamination including the water and soil remediation program, is approximately $1,600 to $2,700, for which the Company has sufficient reserves.

The low and high ends of the range are based on the length of operation of the two extraction wells as determined by groundwater modeling with planned higher maintenance costs in later years if a longer treatment period is required. Costs of operation include the operation and maintenance of the extraction wells, groundwater monitoring, one-time expenses to insure P-3 is hydraulically containing the PERC plume and program management. The duration of the well operation was estimated based on historical trends in concentrations in the monitoring wells within the proximity of the applicable extraction wells. Also factored into the model was the impact of water injected into the underground aquifer from a planned recharge basin adjacent to the ACP site as well as from an injection well to be installed and operated by OCWD as part of the groundwater treatment system for contaminants which are the subject of the aforementioned litigation. Based on the modeling, it is estimated that P-2 will operate for another two years and P-3 will operate for three years to up to six years. Operation and maintenance costs were based on historical expenditures and estimated inflation. As mentioned above, a significantly higher maintenance expense was factored into the range if the system operates for the longer period. Also included in the reserve are anticipated expenditures to operate an on-site soil vapor extraction system.

The Company believes, although there can be no assurance regarding the outcome of other unrelated environmental matters, that it has made adequate accruals for costs associated with other environmental problems of which it is aware. Approximately $99 was accrued at ~~March 31,~~June 30, 2010 and December 31, 2009, respectively, to provide for such anticipated future environmental assessments and remediation costs.

An inactive subsidiary of the Company that was acquired in 1978 sold certain products containing asbestos, primarily on an installed basis, and is among the defendants in numerous lawsuits alleging injury due to exposure to asbestos. The subsidiary discontinued operations in 1991 and has no remaining assets other than the proceeds from insurance settlements received. To date, the overwhelming majority of these claims have been disposed of without payment and there have been no adverse judgments against the subsidiary. Based on a continued analysis of the existing and anticipated future claims against this subsidiary, it is currently projected that the subsidiary’s total liability over the next 50 years for these claims is approximately $8,500 (excluding costs of defense). Although the Company has also been named as a defendant in certain of these cases, no claims have been actively pursued against the Company, and the Company has not contributed to the defense or settlement of any of these cases pursued against the subsidiary. These cases were handled by the subsidiary’s primary and excess insurers who had agreed in 1997 to pay all defense costs and be responsible for all damages assessed against the subsidiary arising out of existing and future asbestos claims up to the aggregate limits of the policies. A significant portion of this primary insurance coverage was provided by an insurer that is now insolvent, and the other primary insurers have asserted that the aggregate limits of their policies have been exhausted. The subsidiary challenged the applicability of these limits to the claims being brought against the subsidiary. In response, two of the three carriers entered into separate settlement and release agreements with the subsidiary in late 2005 and in the first quarter of 2007 for $15,000 and $20,000, respectively. The payments under the latest settlement and release agreement were structured to be received over a four-year period with annual installments of $5,000, the final installment which was received in the first quarter of 2010. The proceeds of both settlements are restricted and can only be used to pay claims and costs of defense associated with the subsidiary’s asbestos litigation. During the third quarter of 2007, the subsidiary and the remaining primary insurance carrier entered into a Claim Handling and Funding Agreement, under which the carrier will pay 27% of defense and indemnity costs incurred by or on behalf of the subsidiary in connection with asbestos bodily injury claims for a minimum of five years beginning July 1, 2007. At the end of the term of the agreement, the subsidiary may choose to again pursue its claim against this insurer regarding the application of the policy limits. The Company also believes, that if the coverage issues under the primary policies with the remaining carrier are resolved adversely to the subsidiary and all settlement proceeds were used, the subsidiary may have limited additional coverage from a state guarantee fund established following the insolvency of one of the subsidiary’s primary insurers. Nevertheless, liabilities in respect of claims may exceed the assets and coverage available to the subsidiary.

If the subsidiary’s assets and insurance coverage were to be exhausted, claimants of the subsidiary may actively pursue claims against the Company because of the parent-subsidiary relationship. Although asbestos litigation is particularly difficult to predict, especially with respect to claims that are currently not being actively pursued against the Company, the Company does not believe that such claims would have merit or that the Company would be held to have liability for any unsatisfied obligations of the subsidiary as a result of such claims. After evaluating the nature of the claims filed against the subsidiary and the small number of such claims that have resulted in any payment, the potential availability of additional insurance coverage at the subsidiary level, the additional availability of the Company’s own insurance and the Company’s strong defenses to claims that it should be held responsible for the subsidiary’s obligations because of the parent-subsidiary relationship, the Company believes it is not probable that the Company will incur any material losses. All of the asbestos cases pursued against the Company challenging the parent-subsidiary relationship are in the early stages of litigation. The Company has been successful in the past having claims naming it dismissed during initial proceedings. Since the Company may be in this early stage of litigation for some time, it is not possible to estimate additional losses or range of loss, if any.

~~Notes~~Reference is made to ~~Condensed Consolidated~~our Management’s Discussion and Analysis of Financial ~~Statements—Continued~~

~~(Dollars~~Condition and Results of Operations – Liquidity and Capital Resources in ~~thousands, except per share amounts)~~

this Report for a discussion concerning a potential unasserted claim regarding value-added-taxes.

The Company is party to other litigation which management currently believes will not have a material adverse effect on the Company’s results of operations, cash flows or financial condition.

16In July 2010, the Company completed the acquisition of the assets of D.A. Stuart’s U.S. aluminum hot rolling oil business from Houghton International for $6,862, subject to a post-closing working capital adjustment. This business had net sales of approximately $6,858 in 2009. The acquisition includes the rights to sell the product portfolio internationally, and the Company is currently in the process of the purchase price allocation. This acquisition strategically strengthens the Company’s position in the non-ferrous industry, as the acquired product portfolio is complementary to its existing business.

Quaker Chemical Corporation is a leading global provider of process chemicals, chemical specialties, services and technical expertise to a wide range of ~~industries—~~industries – including steel, automotive, mining, aerospace, tube and pipe, coatings and construction materials. Our products, technical solutions and chemical management services (“CMS”) enhance our customers’ processes, improve their product quality and lower their costs.

The ~~revenue and~~second quarter 2010 earnings ~~growth~~per diluted share of $0.80 represents a considerable improvement compared to earnings per diluted share of $0.29 in the ~~first~~second quarter of 2009. This improvement was driven by high steel industry demand in China, Brazil, India and Russia and continued recovery of industrial demand in North America and Europe. Product volumes increased 42% in the second quarter of 2010 compared to the ~~first~~second quarter of 2009, ~~was primarily due to a 35% increase in product volumes across the globe~~ as the Company continued to recover from the economic downturn. The gross margin percentage improved ~~due~~slightly from the second quarter of 2009, but declined 1.2 percentage points from the first quarter of 2010. The Company is implementing price increases to ~~cost reduction actions, a more favorable~~help offset higher raw material ~~cost environment and reduced automotive chemical management services (“CMS”) revenues reported on a gross basis.~~costs where necessary. The Company’s selling, general and administrative expenses increased ~~$7.0~~$6.1 million primarily due to higher ~~incentive compensation, foreign exchange rate translation and higher~~ selling costs on increased ~~sales.~~

~~The first quarter 2010 results included a charge of $0.03 per diluted share related to devaluation of Venezuelan Bolivar Fuerte,~~sales, higher incentive compensation on improved profitability, as well as inflationary and other costs.

The second quarter 2009 results include a ~~benefit of $0.11 per diluted share~~charge related to the ~~expiration~~former CEO’s supplemental retirement plan of ~~applicable statutes of limitations for uncertain tax positions. The first quarter 2009 results included a restructuring charge of $0.14~~approximately $0.07 per diluted ~~share~~share.

In July 2010, the Company completed the acquisition of D.A. Stuart’s U.S. aluminum hot rolling oil business from Houghton International, which had net sales of approximately $6.9 million in 2009. The acquisition includes the rights to sell the product portfolio internationally, which has strong long-term growth prospects especially with our existing presence in emerging economies such as Russia, South America, Eastern Europe, the Middle East and Asia. With this acquisition, Quaker becomes a ~~gain of $0.11 per diluted share related to the disposition of land in Europe.~~

~~The net result was earnings per diluted share of $0.84 for the first quarter of 2010, a considerable improvement over the breakeven results~~leading player in the first quarter of 2009. The improvement was driven by high steel industry demand in China, Brazil, India and Russia while industrial demand in North America and Europe continues to gradually recover from depressed levels.U.S. aluminum hot rolling market.

~~While~~Longer term, the Company continues to ~~add new business and will benefit from continued improvement in key steel and automotive markets,~~expect solid growth over the ~~Company anticipates somewhat lower product volumes for the second half compared to the first half of 2010. This is primarily~~next several years due to ~~credit-tightening actions~~its strong positions in ~~China, seasonal factors relating to timing of shipments to certain customers, the ending of inventory restocking in the Company’s end use~~faster growing markets and the ~~conclusion of tax incentives for automotive purchases~~gradual economic recovery in ~~several countries. The combination of somewhat lower expected demand in~~more mature markets. For the second half of 2010, the ~~lag effects as~~Company anticipates earnings will continue to be strong but below the ~~Company recovers its margins~~first half of 2010 due to a softening in demand and the lag effect on margins as we recover higher raw material costs and our continued investment in key growth initiatives will likely dampen earnings over the remaining quarters for 2010. However, the Company expects to deliver strong earnings over the rest of 2010 as the remaining quarters are still expected to equal or exceed the earnings we achieved in 2008 before the global economic crisis began. Longer-term, the Company expects to see good growth in our key markets as we are well positioned in the fastest growing economies as well as the expected above normal growth in the more mature markets as they recover over the coming years.costs.

In 2003, the Company began to substantially increase the size and scope of its CMS contracts. The Company currently has more than 50 CMS contracts in North America, as well as additional CMS contracts in other areas of the world. Under its traditional CMS approach, the Company effectively acts as an agent, and the revenues and costs from these sales are reported on a net sales or “pass-through” basis. Under certain of its CMS contracts, the contracts are structured differently in that the Company’s revenue received from the customer is a fee for products and services provided to the customer, which are indirectly related to the actual costs incurred. Under this alternative structure, profit is dependent on how well the Company controls product costs and achieves product conversions from other third-party suppliers to its own products. As a result, under this structure, the Company recognizes in reported revenue the gross revenue received from the CMS site customer, and in cost of goods sold the third-party product purchases, which substantially offset each other until the Company achieves significant product conversions, which may result in a decrease in reported gross margin as a percentage of sales.

In 2009, the Company had a mix of contracts with both the traditional product pass-through structure and fixed price contracts covering all services and products. As a result of the global economic downturn and its impact in the automotive sector, during 2009 and early 2010, the Company has experienced a shift in customer requirements and business circumstances where the majority of CMS contracts have reverted to the traditional product pass-through structure. However, the Company’s offerings will continue to include both approaches to CMS.

Quaker’s cash and cash equivalents ~~decreased~~increased to ~~$24.8~~$27.6 million at ~~March 31,~~June 30, 2010 from $25.1 million at December 31, 2009. The ~~$0.3~~$2.5 million ~~decrease~~increase resulted primarily from ~~$4.8~~$10.3 million of cash ~~used in~~provided by operating activities, $0.3 million of cash ~~provided by~~used in investing activities, ~~and $5.4~~$3.6 million of cash ~~provided by~~used in financing ~~activities.~~activities and a $3.9 million decrease from the effect of exchange rates on cash.

Net cash flows ~~used in~~provided by operating activities were ~~$4.8~~$10.3 million in the first ~~quarter~~half of 2010 compared to ~~$8.2~~$26.8 million of cash provided by operating activities in the first ~~quarter~~half of 2009. The Company’s improvement in net income was more than offset by increased investments in working capital. During the first ~~quarter~~half of 2009, the Company experienced significantly lower business activity as a result of the global economic downturn which in turn greatly reduced the Company’s investment in working capital. As business volumes continued to increase throughout 2009 and in the first ~~quarter~~half of 2010, the Company’s need for working capital investment ~~correspondingly~~ increased. The Company has also been building its safety stock levels of certain inventory in response to shortages and related to the startup of our Middletown, Ohio plant expansion. The timing of incentive compensation payments in the first quarter of 2010 was the most significant factor other than changing business activity affecting the accounts payable and other accrued liabilities comparisons. In 2008, the Company’s results were below performance targets for incentive compensation, while in 2009 the Company exceeded performance targets. The Company’s first quarter 2009 disposition of land in Europe also impacted the cash flow comparisons.

Net cash flows ~~provided by~~used in investing activities were $0.3 million in the first ~~quarter~~half of 2010 compared to ~~$0.8~~$2.0 million of cash used in investing activities in the first ~~quarter~~half of 2009. ~~The~~There were three primary drivers of the change in cash flow, ~~was driven by~~ the first quarter 2009 final $1.0 million payment related to the 2005 acquisition of the remaining 40% interest in the Company’s Brazilian joint venture, the first quarter 2009 proceeds from disposition of land in Europe and ~~increased~~lower capital expenditures in the first half of 2010 ~~cash flow from the Company’s construction fund~~ related to the Company’s expansion of its Middletown, Ohio manufacturing facility.

In the first quarter of 2007, an inactive subsidiary of the Company reached a settlement agreement and release with one of its insurance carriers for $20.0 million. The proceeds of the settlement are restricted and can only be used to pay claims and costs of defense associated with this subsidiary’s asbestos litigation. The payments were structured to be received over a four-year period with annual installments of $5.0 million, the final installment which was received in the first quarter of 2010. During the third quarter of 2007, the same inactive subsidiary and one of its insurance carriers entered into a Claim Handling and Funding Agreement under which the carrier will pay 27% of the defense and indemnity costs incurred by or on behalf of the subsidiary in connection with asbestos bodily injury claims for a minimum of five years beginning July 1, 2007.

Net cash flows ~~provided by~~used in financing activities were ~~$5.4~~$3.6 million for the first ~~quarter~~half of 2010, compared to ~~$10.2~~$22.2 million of cash used in financing activities for the first ~~quarter~~half of 2009. The majority of the change was the result of ~~net debt borrowings in 2010 compared to net~~higher debt repayments in ~~2009.~~the first half of 2009 compared to the first half of 2010. In the first ~~quarter of 2010, the Company borrowed primarily to fund working capital needs from increased business activity as well as the timing of payments of incentive compensation. In the first quarter~~half of 2009, the cash flow generated from reduced working capital investments as a result of significantly curtailed business volumes enabled the higher debt repayments. In addition, in the first half of 2010, a higher level of stock options were exercised which impacted the change in cash flows.

~~The Company’s~~As discussed in a Current Report on Form 8-K filed on June 21, 2010, the Company amended its primary credit ~~line is a $125.0~~facility to increase the maximum principal amount available for revolving credit borrowings from $125 million ~~syndicated multicurrency credit agreement with Bank of America, N.A. (administrative agent)~~to $175 million. This amount can be increased to $225 million at the Company’s option if the lenders agree to increase their commitment and the Company satisfies certain ~~other major financial institutions, which expires in 2012.~~conditions. At ~~March 31,~~June 30, 2010 and December 31, 2009, the Company had approximately ~~$54.0~~$45.5 million and $46.4 million outstanding, respectively. The amendment also extended the maturity date of the Company’s credit line from August 2012 to June 2014 and amended certain acquisition and other covenants, including a reduced interest rate spread and a new interest rate tier for leverage ratios below one times EBITDA that would allow for a further interest rate spread reduction. The Company’s access to this credit is largely dependent on its consolidated leverage ratio covenant, which ~~could not~~cannot exceed ~~3.75~~3.5 to 1, and at ~~March 31,~~June 30, 2010 and December 31, ~~2009. The Company’s~~2009, the consolidated leverage ratio was below 2.0 to 1 at both March 31, 2010 and December 31, 2009. As discussed in a Current Report on Form 8-K filed on February 20, 2009, the Company amended its credit facility to provide covenant relief related to the 2008 and 2009 restructuring programs and the CEO transition costs and temporarily increased the maximum permitted leverage ratio through March 31, 2010. Going forward, the Company’s consolidated leverage ratio cannot exceed 3.5 to 1. ~~In February 2009, the Company also amended two Industrial Revenue Bonds totaling $15.0 million to provide for the same changes in terms as the credit facility.~~ The Company has entered into interest rate swaps in order to fix a portion of its variable rate debt, with a combined notional value of $40.0 million as of ~~March 31, 2010, in order to fix a portion of its variable rate debt.~~June 30, 2010. Outstanding financial derivative instruments may expose the Company to credit loss in the event of nonperformance by the counterparties to the agreements. To manage credit risk, the Company limits its exposure to any single counterparty. However, the Company does not expect any of the counterparties to fail to meet their obligations.

In June 2010, one of the Company’s subsidiaries discovered that it may have paid certain value-added-taxes (“VAT”) to an incorrect jurisdiction and, in certain cases, may not have collected sufficient VAT from certain customers. No tax jurisdiction has asserted any claim against the subsidiary. While the Company is in the early stages of an investigation, based on the work done to date, it appears that ultimately any potential VAT owed may be recovered from other parties. Nevertheless, the timing of payment and ultimate collection may not be contemporaneous and if additional VAT is owed, it may not be fully recoverable. It is too early to provide an estimate of a range of loss, if any. However, as VAT is often charged as a percentage of the selling price of the goods sold, this matter may have the potential to have a material adverse impact on the Company’s results of operations.

At ~~March 31,~~June 30, 2010, the Company’s gross liability for uncertain tax positions, including accrued interest and penalties, was ~~$12.6~~$12.3 million. The Company cannot determine a reliable estimate of the timing of cash flows by period related to its uncertain tax position liability. However, should the entire liability be paid, the amount of the payment may be reduced by ~~up to $6.1~~$6.3 million as a result of offsetting benefits in other tax jurisdictions.

The Company’s net ~~debt-to-total-capital~~debt-to-total capital ratio ~~remained strong at~~decreased to 19% as of June 30, 2010, compared to 24% as of March 31, 2010 ~~compared to 31% as of March 31, 2009~~ and 20% as of December 31, 2009. The Company believes it is capable of supporting its operating requirements, including pension plan contributions, payments of dividends to shareholders, possible acquisitions and business opportunities, capital expenditures and possible resolution of contingencies, through internally generated funds supplemented with debt or equity as needed.

Comparison of ~~First~~Second Quarter of 2010 with ~~First~~Second Quarter of 2009

Net sales for the second quarter were $136.0 million, up 33% from $102.3 million for the second quarter of 2009. The increase in net sales was a result of double-digit volume increases across the globe as the Company continues to recover from the economic downturn. Product volumes increased 42%, partially offset by a 5% decline in selling price and mix, as well as lower automotive chemical management services (“CMS”) revenue due to lower revenue reported on a gross basis. On a sequential quarterly basis, product volumes increased by approximately 7%.

Gross margin was up $12.5 million, or 35%, compared to the second quarter of 2009 as a result of increased volumes. The gross margin percentage increased slightly compared to the second quarter of 2009, but decreased 1.2 percentage points from the first quarter of 2010. The Company is implementing price increases as necessary to help offset higher raw material costs.

Selling, general and administrative expenses (“SG&A”) increased $6.1 million, or 21%, compared to the second quarter of 2009. Higher selling costs with increased business activity, as well as increased incentive compensation and professional fees, were ~~$128.3~~the primary drivers, representing 70% of the increase. Inflationary and other costs accounted for the remainder of the increase.

The Company incurred charges related to the former CEO’s supplemental retirement plan of approximately $1.2 million in the second quarter of 2009 and expects to incur a final charge of $1.3 million later in 2010.

The increase in other income is due to higher license fees from increased business activities as well as foreign exchange rate gains in the second quarter of 2010 versus losses in the second quarter of 2009. The decrease in net interest expense is due to lower average debt balances as well as higher interest income.

The second quarter 2010 effective tax rate was 31% compared to 32% in the second quarter of 2009. Many external and internal factors can impact this rate and the Company will continue to refine this rate, if necessary, as the year progresses. Please refer to the Comparison of the First Six Months of 2010 with the First Six Months of 2009, below, for further discussion.

Segment Reviews – Comparison of Second Quarter 2010 with Second Quarter 2009

Metalworking Process Chemicals consists of industrial process fluids for various heavy industrial and manufacturing applications and represented approximately 94% of the Company’s net sales in the second quarter of 2010. Net sales were up $33.4 million, or 36%, compared to the second quarter of 2009. Foreign currency translation positively impacted net sales by approximately 1%. Net sales were positively impacted by increases of 30% in North America, 33% in Europe, 41% in Asia/Pacific and 42% in South America, all on a constant currency basis. The increase in this segment’s sales was primarily attributable to increased product volumes of 45% impacting all regions as the Company continues to recover from the global economic downturn. The product volume increases were partially offset by a reduction in automotive CMS revenue, which was due, in part, to the renegotiation of certain contracts now reported on a pass-through versus gross basis as well as decreases attributable to selling price and mix. Consistent with the significant volume increases, this segment’s operating income increased $9.3 million over the second quarter of 2009.

The Company’s Coatings segment, which represented approximately 6% of the Company’s net sales in the second quarter of 2010, contains products that provide temporary and permanent coatings for metal and concrete products and chemical milling maskants. Net sales for this segment were up $0.3 million, or 3% for the second quarter of 2010 compared to the second quarter of 2009, primarily due to increased coatings volumes. However, this segment’s operating income was down $0.2 million, related to higher raw material costs and product mix as well as increased selling costs.

Other Chemical Products, which represented less than 1% of the Company’s net sales in the second quarter of 2010, consists of sulfur removal products for industrial gas streams sold by the Company’s Q2 Technologies joint venture. Net sales were flat and operating income was slightly above break even for the second quarter of 2010.

Comparison of the First Six Months of 2010 with the First Six Months of 2009

Net sales for the first half of 2010 were $264.3 million, up ~~30%~~32% from ~~$98.5~~$200.8 million for the first ~~quarter~~half of 2009. ~~The~~As with the quarterly comparison, the increase in net sales was a result of higher volumes across the globe as the Company continues to recover from the economic downturn. Product volumes increased ~~35%~~39%, partially offset by a 5% decline in selling price and mix. Foreign exchange rates increased revenues by approximately 7%4%, which ~~was~~were more than offset by lower automotive CMS revenue ~~as a result of~~due to lower revenue reported on a gross basis. On

Gross margin increased $31.1 million, or 48%, compared to the first half of 2009 largely as a ~~sequential quarterly basis product volumes~~result of increased ~~by approximately 3%.~~

volumes. The gross margin percentage of ~~36.9%~~36.3% represents considerable improvement over the ~~29.1% reported in the~~ first ~~quarter~~half of ~~2009. This~~2009 percentage of 32.2%. The margin expansion was ~~primarily~~ the result of ~~higher volumes,~~ cost reduction actions taken, a more favorable year-to-date raw material cost environment and ~~the~~ reduced automotive CMS revenues reported on a gross basis. The increase in gross margin percentage from the fourth quarter of 2009 was due to reduced CMS revenues reported on a gross basis, partially offset by higher costs related to the start-up of the Middletown, Ohio plant expansion, as well as increasing raw material prices and mix.

~~Selling, general and administrative expenses~~SG&A increased ~~$7.0~~$13.0 million, or ~~26%~~23%, compared to the first ~~quarter~~half of 2009. Higher selling costs with increased business activity, as well as increased incentive compensation ~~in the first quarter of 2010, compared to reductions of incentive compensation accruals in the first quarter of 2009~~ and ~~foreign exchange rate increases,~~professional fees, were the primary drivers, ~~of the increase,~~ representing ~~82%~~74% of the increase. ~~Higher commissions on improved sales and increased travel~~Inflationary and other costs as well as foreign exchange rates accounted for the remainder of the increase.

In ~~response to~~ the ~~global economic downturn,~~first quarter of 2009, the Company ~~initiated~~implemented a restructuring ~~programs and incurred charges of approximately~~program totaling $2.3 million or approximately $0.14 per diluted ~~share, in the first quarter of 2009.~~share. The Company completed ~~all restructuring~~the initiatives inunder this program during 2009.

~~The decrease~~Other income for the 2010 period includes higher license fees from increased business activities as well as foreign exchange rate gains versus losses in ~~other income is primarily due to~~ the ~~first quarter~~ 2009 period, which offset a gain related to the disposition of land in ~~Europe.~~ Europe of approximately $0.11 per diluted share in 2009. The decrease in net interest expense is due to lower average debt balances as well as higher interest income.

Equity in net ~~loss~~income of associated companies includes a charge of approximately $0.03 per diluted share related to the first quarter 2010 devaluation of the Venezuelan Bolivar Fuerte. ~~The increase in net income attributable to noncontrolling interests is due to stronger financial performances from those affiliates as they continue to recover from the global economic downturn.~~

The Company’s ~~low first quarter~~year-to-date 2010 effective tax rate of ~~24% reflects~~27% was consistent with the 2009 year-to-date effective tax rate, and includes the derecognition of uncertain tax positions due to the expiration of applicable statutes of limitations for ~~uncertain~~certain tax ~~positions~~years of approximately $0.11 per diluted share. The effective tax ~~benefit recorded in~~rate for the first ~~quarter~~half of 2009 reflects no tax provided for the land sale gain, due to the utilization of net operating losses, which were previously not ~~previously~~ benefited. The most significant other item affecting the comparison of year-to-date effective tax rates is a changing mix of income among tax jurisdictions. The Company has experienced, and expects to experience, further volatility in its quarterly effective tax rates due to the varying timing of tax audits and the expiration of applicable statutes of limitations as they relate to uncertain tax positions. The Company currently expects additional derecognition of uncertain tax positions of approximately $0.11 per diluted share to occur later in 2010. ~~However, the Company expects a higher effective tax rate for the full year 2010, compared to the first quarter 2010 rate.~~ During the first ~~quarter~~half of 2010, the Company recorded ~~$2.0~~$2.1 million of excess tax benefits in capital in excess of par ~~value~~ on its Condensed Consolidated Balance Sheet, related to stock option exercises, which occurred over the current and prior years. Previously, the Company’s actual taxable income in affected jurisdictions was not sufficient to recognize these benefits, while the Company’s full-year 2010 projection of taxable income is expected to be sufficient to recognize these benefits. As a result, the Company recognized ~~$0.3~~$1.2 million of these benefits as a cash inflow from financing activities in its Condensed Consolidated Statement of Cash Flows, which represents the Company’s estimate of cash savings through ~~March 31,~~June 30, 2010. At the end of 2009, the Company had net U.S. deferred tax assets totaling $16.3 million, excluding deferred tax assets relating to additional minimum pension liabilities. The Company records valuation allowances when necessary to reduce its deferred tax assets to the amount that is more likely than not to be realized. The Company considers future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. However, in the event the Company were to determine that it would not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the deferred tax assets would be a non-cash charge to income in the period such determination was made, which could have a material adverse impact on the Company’s financial statements. The global economic downturn has been negatively impacting profitability in certain taxing jurisdictions. The Company continues to closely monitor this situation as it relates to its net deferred tax assets and the assessment of valuation allowances. The Company is continuing to evaluate alternatives that could positively impact taxable income in these jurisdictions.

Segment ~~Reviews—~~Reviews – Comparison of the First ~~Quarter~~Six Months of 2010 with the First ~~Quarter~~Six Months of 2009

Metalworking Process Chemicals consists of industrial process fluids for various heavy industrial and manufacturing applications and represented approximately ~~95%~~94% of the Company’s net sales in the first ~~quarter~~half of 2010. Net sales were up ~~$30.4~~$63.8 million, or ~~33%~~35%, compared to the first ~~quarter~~half of 2009. Foreign currency translation positively impacted net sales by approximately 8%4%, driven by the ~~E.U. Euro to U.S. Dollar, and~~ Brazilian Real to U.S. Dollar exchange ~~rates.~~rate. The ~~average U.S. Dollar to E.U. Euro exchange rate was 1.38 in the first quarter of 2010 compared to 1.31 in the first quarter of 2009, and the~~ average U.S. Dollar to Brazilian Real exchange rate was ~~0.55~~0.56 in the first ~~quarter~~half of 2010 compared to ~~0.43~~0.46 in the first ~~quarter~~half of 2009. Net sales were positively impacted by increases of 4%16% in North America, ~~25%~~29% in Europe, ~~48%~~44% in ~~Asia~~ Asia/Pacific and ~~63%~~51% in South America, all on a constant currency basis. The increase in this segment’s sales was primarily attributable to increased product volumes of ~~39%~~42% impacting all regions as the Company continues to recover from the global economic downturn. The product volume increases were partially offset by a reduction in automotive CMS revenue, which was due, in part, to the renegotiation of certain contracts now reported on a pass-through versus gross ~~basis.~~basis as well as decreases attributable to selling price and mix. Consistent with the significant volume increases, this segment’s operating income increased ~~$15.9 million.~~$25.2 million over the first half of 2009. This segment’s operating income also benefited from savings from the Company’s restructuring efforts as well as a more favorable raw material environment.

The Company’s coatings segment, which represented approximately 5%6% of the Company’s net sales in the first ~~quarter~~half of 2010, contains products that provide temporary and permanent coatings for metal and concrete products and chemical milling maskants. Net sales for this segment were down ~~$0.5~~$0.3 million, or ~~7%,~~2% for the first ~~quarter~~half of 2010 compared to the first ~~quarter~~half of 2009, primarily due to reduced volumes of chemical milling maskants sold to the aerospace ~~industry as well as reduced coating sales to the construction~~ industry. This segment’s operating income was down ~~$0.1~~$0.3 million ~~consistent with~~related to the noted volume ~~decline noted above.~~declines, higher raw material costs and product mix, as well as increased selling costs.

Other Chemical Products, which represented less than 1% of the Company’s net sales infor the first ~~quarter~~half of 2010, consists of sulfur removal products for industrial gas streams sold by the Company’s Q2 Technologies joint venture. Net sales were down $0.1 million as a result of the downturn in the oil and gas market. Operating income was a slight loss for the first ~~quarter~~half of 2010, reflective of the noted volume decline.

(Cautionary Statements Under the Private Securities Litigation Reform Act of 1995)

Certain information included in this Report and other materials filed or to be filed by Quaker with the SEC (as well as information included in oral statements or other written statements made or to be made by us) contain or may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements can be identified by the fact that they do not relate strictly to historical or current facts. We have based these forward-looking statements on our current expectations about future events. These forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, intentions, financial condition, results of operations, future performance and business, including:

Such statements include information relating to current and future business activities, operational matters, capital spending, and financing sources. From time to time, forward-looking statements are also included in Quaker’s other periodic reports on Forms 10-K, 10-Q and 8-K, as well as in press releases and other materials released to, or statements made to, the public.

Any or all of the forward-looking statements in this Report and in any other public statements we make may turn out to be wrong. This can occur as a result of inaccurate assumptions or as a consequence of known or unknown risks and uncertainties. Many factors discussed in this Report will be important in determining our future performance. Consequently, actual results may differ materially from those that might be anticipated from our forward-looking statements.

We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in Quaker’s subsequent reports on Forms 10-K, 10-Q and 8-K should be consulted. These forward-looking statements are subject to risks, uncertainties and assumptions about us and our operations that are subject to change based on various important factors, some of which are beyond our control. A major risk is that the Company’s demand is largely derived from the demand for its customers’ products, which subjects the Company to uncertainties related to downturns in a customer’s business and unanticipated customer production planning shutdowns. Other major risks and uncertainties include, but are not limited to, significant increases in raw material costs, worldwide economic and political conditions, foreign currency fluctuations, and terrorist attacks such as those that occurred on September 11, 2001. Furthermore, the Company is subject to the same business cycles as those experienced by steel, automobile, aircraft, appliance, and durable goods manufacturers. These risks, uncertainties, and possible inaccurate assumptions relevant to our business could cause our actual results to differ materially from expected and historical results. Other factors beyond those discussed could also adversely affect us. Therefore, we caution you not to place undue reliance on our forward-looking statements. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995.

Quaker is exposed to the impact of changes of interest rates, foreign currency fluctuations, changes in commodity prices, and credit risk.

Interest Rate Risk. Quaker’s exposure to market rate risk for changes in interest rates relates primarily to its short and long-term debt. Most of Quaker’s debt is negotiated at market rates which can be either fixed or variable. Accordingly, if interest rates rise significantly, the cost of debt to Quaker will increase. This can have an adverse effect on Quaker, depending on the extent of Quaker’s borrowings. As of ~~March 31,~~June 30, 2010, Quaker had ~~$54.0~~$45.5 million in borrowings under its credit facilities, compared to $46.4 million at December 31, 2009, at a weighted average variable borrowing rate of approximately 2.54% (LIBOR plus a spread). The Company uses derivative financial instruments primarily for purposes of hedging exposures to fluctuations in interest rates. The Company does not enter into derivative contracts for trading or speculative purposes. The Company has entered into interest rate swaps in order to fix a portion of its variable rate debt. The swaps had a combined notional value of $40.0 million and a fair value of ~~$(2.0)~~$(1.7) million and $(2.2) million at ~~March 31,~~June 30, 2010 and December 31, 2009, respectively. As of the date of this Report, the Company is receiving a LIBOR rate and paying an average fixed rate of approximately 5% on its interest rate swaps. Five of the Company’s swaps with a notional value of $25.0 million mature in 2010, while the remaining three swaps with a notional value of $15.0 million mature in 2012. The counterparties to the swaps are major financial institutions. Outstanding financial derivative instruments expose the Company to credit loss in the event of nonperformance by the counterparties to the agreements. To manage credit risk, the Company limits its exposure to any single counterparty. However, the Company does not expect any of the counterparties to fail to meet their obligations. Reference is made to the information included ~~under~~ in Note 6 of the Notes to Condensed Consolidated Financial Statements.

Foreign Exchange Risk. A significant portion of Quaker’s revenues and earnings is generated by its foreign operations. These foreign operations also hold a significant portion of Quaker’s assets and liabilities. All such operations use the local currency as their functional currency. Accordingly, Quaker’s financial results are affected by risks typical of global business such as currency fluctuations, particularly between the U.S. Dollar, the Brazilian Real, the Chinese Renminbi and the E.U. Euro. As exchange rates vary, Quaker’s results can be materially affected.

The Company generally does not use financial instruments that expose it to significant risk involving foreign currency transactions; however, the size of non-U.S. activities has a significant impact on reported operating results and the attendant net assets. During the past three most recent fiscal years, sales by non-U.S. subsidiaries accounted for approximately 58% to 62% of consolidated net annual sales.

In addition, the Company often sources inventory among its worldwide operations. This practice can give rise to foreign exchange risk resulting from the varying cost of inventory to the receiving location as well as from the revaluation of intercompany balances. The Company mitigates this risk through local sourcing efforts.

Commodity Price Risk. Many of the raw materials used by Quaker are commodity chemicals, and, therefore, Quaker’s earnings can be materially adversely affected by market changes in raw material prices. In certain cases, Quaker has entered into fixed-price purchase contracts having a term of up to one year. These contracts provide for protection to Quaker if the price for the contracted raw materials rises, however, in certain limited circumstances, Quaker will not realize the benefit if such prices decline.

Credit Risk. Quaker establishes allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of Quaker’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Downturns in the overall economic climate may also tend to exacerbate specific customer financial issues. A significant portion of Quaker’s revenues is derived from sales to customers in the U.S. steel and automotive industries, including some of our larger customers, where a number of bankruptcies occurred during recent years and companies have experienced financial difficulties. When a bankruptcy occurs, Quaker must judge the amount of proceeds, if any, that may ultimately be received through the bankruptcy or liquidation process. In addition, as part of its terms of trade, Quaker may custom manufacture products for certain large customers and/or may ship product on a consignment basis. These practices may increase the Company’s exposure should a bankruptcy occur, and may require write-down or disposal of certain inventory due to its estimated obsolescence or limited marketability. Customer returns of products or disputes may also result in similar issues related to the realizability of recorded accounts receivable or returned inventory.

Evaluation of disclosure controls and procedures. ~~Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information~~As required ~~to be disclosed~~ by ~~an issuer in the reports that it files or submits~~Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) ~~is accumulated and communicated to the issuer’s~~, our management, including ~~its~~our principal executive officer and principal financial officer, ~~or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on their evaluation~~has evaluated the effectiveness of ~~such~~our disclosure controls and procedures as of the end of the period covered by this ~~Quarterly Report~~report. Based on ~~Form 10-Q,~~that evaluation, our principal executive officer and our principal financial officer have concluded that as of the ~~Company’s~~end of the period covered by this report our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective.

Changes in internal control over financial reporting. As required by Rule 13a-15(d) under the Exchange Act, our management, including our principal executive officer and principal financial officer, have concluded that the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)), are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports it files under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.

~~Changes in internal controls.~~ At the end of 2009, subsidiaries representing approximately 80% of consolidated revenue were operational on the Company’s global ERP system. The Company is currently in the process of adding additional locations to its global ERP system in 2010. The Company is taking the necessary steps to monitor and maintain itshas evaluated our internal control over financial reporting ~~(as defined in Exchange Act Rule 13a-15(f))~~to determine whether any changes to our internal control over financial reporting occurred during ~~this period of change.~~the quarter ended June 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, no such changes to our internal control over financial reporting occurred during the quarter ended June 30, 2010.

Pursuant to the requirements of the Securities Exchange Act of 1934, the ~~registrant~~Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			~~Page~~
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheet at ~~March 31,~~June 30, 2010 and December 31, 2009		3
	Condensed Consolidated Statement of Income for the Three and Six Months ~~Ended March 31,~~ended June 30, 2010 and 2009		4
	Condensed Consolidated Statement of Cash Flows for the ~~Three~~Six Months Ended ~~March 31,~~June 30, 2010 and 2009		5
	Notes to Condensed Consolidated Financial Statements		6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
		18
Item 3.	Quantitative and Qualitative Disclosures ~~about~~About Market Risk		21
		23
Item 4.	Controls and Procedures		22
		24
PART II.	OTHER INFORMATION		23
		25
Item 6.	Exhibits		25
Signatures			23

~~Signatures~~			2325


	Three Months Ended March 31,
	2010			2009
Basic Earnings per Common Share
Net income attributable to Quaker Chemical Corporation	$	9,419		$	2
Less: income allocated to participating securities		(202	)		(21	)

Net income (loss) available to common shareholders	$	9,217		$	(19	)
Basic weighted average common shares outstanding		10,879,225			10,745,286
Basic earnings per common share	$	0.85		$	0.00

Diluted Earnings per Common Share
Net income attributable to Quaker Chemical Corporation	$	9,419		$	2
Less: income allocated to participating securities		(201	)		(21	)

Net income (loss) available to common shareholders	$	9,218		$	(19	)
Basic weighted average common shares outstanding		10,879,225			10,745,286
Effect of dilutive securities, common shares outstanding		118,513			—

Diluted weighted average common shares outstanding		10,997,738			10,745,286
Diluted earnings per common share	$	0.84		$	0.00


	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
Basic Earnings per Common Share
Net income attributable to Quaker Chemical Corporation	$	9,153		$	3,234		$	18,572		$	3,236
Less: income allocated to participating securities		(196	)		(62	)		(399	)		(69	)

Net income available to common shareholders	$	8,957		$	3,172		$	18,173		$	3,167
Basic weighted average common shares outstanding		10,973,547			10,794,578			10,926,647			10,770,068
Basic earnings per common share	$	0.82		$	0.29		$	1.66		$	0.29

Diluted Earnings per Common Share
Net income attributable to Quaker Chemical Corporation	$	9,153		$	3,234		$	18,572		$	3,236
Less: income allocated to participating securities		(194	)		(62	)		(394	)		(69	)

Net income available to common shareholders	$	8,959		$	3,172		$	18,178		$	3,167
Basic weighted average common shares outstanding		10,973,547			10,794,578			10,926,647			10,770,068
Effect of dilutive securities, common shares outstanding		203,417			47,981			158,314			14,160

Diluted weighted average common shares outstanding		11,176,964			10,842,559			11,084,961			10,784,228
Diluted earnings per common share	$	0.80		$	0.29		$	1.64		$	0.29


	Metalworking Process Chemicals			Coatings		Total
Balance as of December 31, 2009	$	38,434		$	8,081	$	46,515
Currency translation adjustments		(1,006	)		—		(1,006	)

Balance as of March 31, 2010	$	37,428		$	8,081	$	45,509


	Fair Value as of June 30, 2010		Fair Value Measurements at June 30, 2010 Using Fair Value Hierarchy
	Fair Value as of June 30, 2010		Level 1		Level 2		Level 3
Assets
Company-owned life insurance	$	1,817	$	—	$	1,817	$	—
Company-owned life insurance - Deferred compensation assets		532		—		532		—
Other deferred compensation assets
Large capitalization registered investment companies		56		56		—		—
Mid capitalization registered investment companies		4		4		—		—
Small capitalization registered investment companies		6		6		—		—
International developed and emerging markets registered investment companies		32		32		—		—
Fixed income registered investment companies		10		10		—		—


Total	$	2,457	$	108	$	2,349	$	—


	Fair Value as of June 30, 2010		Fair Value Measurements at June 30, 2010 Using Fair Value Hierarchy
	Fair Value as of June 30, 2010		Level 1		Level 2		Level 3
Liabilities
Deferred compensation liabilities
Large capitalization registered investment companies	$	491	$	491	$	—	$	—
Mid capitalization registered investment companies		71		71		—		—
Small capitalization registered investment companies		142		142		—		—
International developed and emerging markets registered investment companies		169		169		—		—
Fixed income registered investment companies		52		52		—		—
Fixed general account		177		—		177		—
Interest rate derivatives		1,661		—		1,661		—


Total	$	2,763	$	925	$	1,838	$	—


	Fair Value as of December 31, 2009		Fair Value Measurements at December 31, 2009 Using Fair Value Hierarchy
	Fair Value as of December 31, 2009		Level 1		Level 2		Level 3
Assets
Company-owned life insurance	$	1,869	$	—	$	1,869	$	—
Company-owned life insurance - Deferred compensation assets		622		—		622		—
Other deferred compensation assets
Large capitalization registered investment companies		64		64		—		—
Mid capitalization registered investment companies		4		4		—		—
Small capitalization registered investment companies		7		7		—		—
International developed and emerging markets registered investment companies		39		39		—		—
Fixed income registered investment companies		11		11		—		—


Total	$	2,616	$	125	$	2,491	$	—


	Fair Value as of March 31, 2010		Fair Value Measurements at March 31, 2010 Using Fair Value Hierarchy
	Fair Value as of March 31, 2010		Level 1		Level 2		Level 3
Assets
Company-owned life insurance	$	1,934	$	—	$	1,934	$	—
Company-owned life insurance - Deferred compensation assets		587		—		587		—
Other deferred compensation assets
Large capitalization registered investment companies		64		64		—		—
Mid capitalization registered investment companies		4		4		—		—
Small capitalization registered investment companies		7		7		—		—
International developed and emerging markets registered investment companies		37		37		—		—
Fixed income registered investment companies		10		10		—		—


Total	$	2,643	$	122	$	2,521	$	—


	Fair Value as of March 31, 2010		Fair Value Measurements at March 31, 2010 Using Fair Value Hierarchy
	Fair Value as of March 31, 2010		Level 1		Level 2		Level 3
Liabilities
Deferred compensation liabilities
Large capitalization registered investment companies	$	586	$	586	$	—	$	—
Mid capitalization registered investment companies		77		77		—		—
Small capitalization registered investment companies		122		122		—		—
International developed and emerging markets registered investment companies		195		195		—		—
Fixed income registered investment companies		51		51		—		—
Fixed general account		175		—		175		—
Interest rate derivatives		1,956		—		1,956		—


Total	$	3,162	$	1,031	$	2,131	$	—


	Fair Value as of December 31, 2009		Fair Value Measurements at December 31, 2009 Using Fair Value Hierarchy
	Fair Value as of December 31, 2009		Level 1		Level 2		Level 3
Assets
Company-owned life insurance	$	1,869	$	—	$	1,869	$	—
Company-owned life insurance - Deferred compensation assets		622		—		622		—
Other deferred compensation assets
Large capitalization registered investment companies		64		64		—		—
Mid capitalization registered investment companies		4		4		—		—
Small capitalization registered investment companies		7		7		—		—
International developed and emerging markets registered investment companies		39		39		—		—
Fixed income registered investment companies		11		11		—		—


Total	$	2,616	$	125	$	2,491	$	—


	Metalworking Process Chemicals			Coatings		Total
Balance as of December 31, 2009	$	38,434		$	8,081	$	46,515
Currency translation adjustments		(2,063	)		—		(2,063	)

Balance as of June 30, 2010	$	36,371		$	8,081	$	44,452


10.1	–	Amended Expatriate Agreement by and between Jan F. Nieman and Quaker Chemical (China) Ltd., Quaker Chemical Limited (Hong Kong) and Quaker Chemical B.V., all subsidiaries of Registrant, dated April 6, 2010, Effective March 1, 2010.*

10.2	–	Employment Agreement by and between Registrant and Joseph Berquist dated April 1, 2010.*

10.3	–	Change in Control Agreement by and between Registrant and Joseph Berquist dated April 1, 2010.*

31.1	–	Certification of Chief Executive Officer of the Company pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934

31.2	–	Certification of Chief Financial Officer of the Company pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934

32.1	–	Certification of Michael F. Barry Pursuant to 18 U.S. C. Section 1350

32.2	–	Certification of Mark A. Featherstone Pursuant to 18 U.S. C. Section 1350



10.1	-	Fourth Amendment to Syndicated Multicurrency Credit Agreement between Registrant and Bank of America, N.A. and certain other financial institutions dated June 21, 2010.

10.2	-	Employment Agreement by and between Registrant and Joseph Berquist dated April 1, 2010. Incorporated by reference to Exhibit 10.2 as filed by Registrant with Form 10-Q for the quarter ended March 31, 2010. *

10.3	-	Change in Control Agreement by and between Registrant and Joseph Berquist dated April 1, 2010. Incorporated by reference to Exhibit 10.3 as filed by Registrant with Form 10-Q for the quarter ended March 31, 2010. *

31.1	-	Certification of Chief Executive Officer of the Company pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934

31.2	-	Certification of Chief Financial Officer of the Company pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934

32.1	-	Certification of Michael F. Barry Pursuant to 18 U.S. C. Section 1350

32.2	-	Certification of Mark A. Featherstone Pursuant to 18 U.S. C. Section 1350


				QUAKER CHEMICAL CORPORATION
(Registrant)

				/S/ MARK A. FEATHERSTONE
~~Date: April 27, 2010~~				Mark A. Featherstone, officer duly authorized to sign this report, Vice President and Chief Financial Officer ~~and Treasurer~~

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